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| Expense and Rent Strategies in Real Estate
Management Author: Peter Chinloy and Eric Maribojoc Start Page: 267 Abstract: A model of the real
estate market is developed where the rent-vacancy trade-off also embeds selections on
expenses. High expenses and rents or low expenses and rents are explicit strategies,
positioning properties along an efficient isoprofit frontier. Instead of a rent-vacancy
trade-off, the operator can select either gross or net rent, or some combination as an
offset for vacancy. This macrostructure is more in keeping with observed real estate
markets, where some managers focus on net operating income, and others on effective gross
income. Empirical results for apartments in Portland, Oregon supports the hypothesis that
expenses and rents are positively correlated. An aggressive expense-increasing strategy
pays off in higher rents, though in not all cases is net operating income positive. There
are two implications. First, incentives in management create strategies to maximize gross
as opposed to net income. Second, rent-vacancy trade-offs that use gross income may
misstate the adjustment toward equilibrium. |
